Grainnet

Conferees Agree on Farm Bill Tax Package

By Frank Zaworski

“As summer approaches, American families are paying higher prices than ever for gasoline,” said the U.S. Senate Finance Committee May 8 as it announced a final agreement on a tax package for the 2008 Farm Bill.

“Our country needs to break its dependence on foreign oil and fossil-based fuels – and America’s agricultural sector can help with homegrown energy solutions,” said the office of Senate Finance Committee Chair Max Baucus.

The final farm bill conference report includes a new incentive for the development of cellulosic biofuels, offset by a gradual reduction of the current-law ethanol credit. The biofuel incentives are also intended to help to grow good-paying jobs by supporting innovation in green-collar technologies.

Cellulosic Biofuels

"Cellulosic biofuels can be produced from agricultural waste, wood chips, switch grass and other non-food feedstocks,” Baucus said.

“With an abundant and diverse source of feedstocks available, cellulosic biofuels hold tremendous promise as a home-grown alternative to fossil-based fuels. But because cellulosic biofuels are very expensive to make, government assistance is needed to spur these fuels to commercial viability."

The package includes a new, temporary production tax credit for up to $1.01 per gallon, available through December 31, 2012, with an estimated cost of $403 million over the ten-year budget window.

Biofuels Study

Baucus added that the increasing use of alternative fuels, while vital to our energy future, can put pressure on other sectors of the economy.

To determine the effect of advancing biofuels technology, the bill will require a multi-agency study to analyze current and future biofuels production, and their impact on factors such as land use, fuel prices, the price of grains and forest products, etc.

The study is intended to be a far-reaching analysis of the impact of biofuels production.

Ethanol Credit

“The U.S. ethanol industry has grown dramatically in recent years, far exceeding Congress’ goals for biofuel production,” Baucus said.

“Now that the ethanol industry has matured, it is appropriate to curb the tax subsidy provided to ethanol.”

The package reduces the 51¢/gallon credit for ethanol by 6 cents in the year after which the 7.5 billion-gallon threshold established by the 2005 Energy Policy Act is reached. The proposal is similar to a provision in the December 2007 Clean Renewable Energy and Conservation Tax Act, and is estimated to raise $1.203 billion over the next 10 years—enabling tax incentives for additional renewable energy strategies, according to the Senate Finance Committee.

Other energy-related measures in the tax package are reforms to offset costs.

These reforms include an extension of the tariff on imported ethanol through 2010, the exclusion of denaturant from the alcohol fuels credit, and a duty drawback on certain imported ethanol.